Real Wages Over the Business Cycle

48 Pages Posted: 28 Jun 2004

See all articles by Robert Barsky

Robert Barsky

Research Department, Federal Reserve Bank of Chicago; University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Gary Solon

University of Arizona; National Bureau of Economic Research (NBER)

Date Written: March 1989

Abstract

This paper is an examination of cyclical real wage behavior in the United States since World War II. Like most previous aggregate studies. ours finds little cyclicalitv in aggregate industry real wage data. On the other hand, our analysis of longitudinal microdata from the Panel Study of Income Dynamics reveals substantial procyclicality. We find that this procyclicality is obscured in industry average wage statistics, and to a lesser extent in economywide averages, because those statistics are constructed in a way that gives greater weight to low-wage workers during expansions. The almost complete absence of evidence for countercyclical real wages suggests that movements along labor demand curves have not played a dominant role in cyclical employment fluctuations over the last 40 years. Instead, the procyclicality of real wages indicates that cyclical employment fluctuations have been generated mainly by shifts in labor demand. The sources of these shifts and of the positive slope of the effective labor supply curve, however, remain open to alternative interpretations.

Suggested Citation

Barsky, Robert B. and Solon, Gary, Real Wages Over the Business Cycle (March 1989). NBER Working Paper No. w2888. Available at SSRN: https://ssrn.com/abstract=227241

Robert B. Barsky (Contact Author)

Research Department, Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-764-9476 (Phone)
734-764-2769 (Fax)

National Bureau of Economic Research (NBER)

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United States

Gary Solon

University of Arizona ( email )

Department of Economics
Eller College of Management
Tucson, AZ 85719
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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